Brent crude drops towards $110

Singapore, September 24, 2012

Brent crude futures fell towards $110 in early Asian trade on Monday, dragged down by a firm dollar and worries about weak economic growth in key consumer nations.

Although central banks in the US, Europe and Japan have announced measures aimed at keeping asset markets well supplied with funds, growth concerns have overtaken the initial elation following the stimulus announcements.

"The optimism (over the measures) is gone and investors are starting to realise it's not backed by good economic data," said Jonathan Barratt, chief executive of BarrattBulletin, a commodity research firm in Sydney.

"Investors are not confident, that is why they're punishing commodities, including oil."

Front-month Brent futures had fallen 82 cents to $110.60 by 0311 GMT, US crude futures were 84 cents lower at $92.05 per barrel. Both contracts shed more than $1 in early trade.

Brent dropped 4.5 percent last week, while US crude lost 6.2 percent on demand worries as well as a pledge by Saudi Arabia to keep prices down.

GROWTH VS STIMULUS

A firm dollar, which makes commodities denominated in the greenback more expensive for investors in other currencies, also deterred buying, adding to the pressure on oil futures.

The dollar index rose 0.3 percent on Monday as the euro reeled under increasing uncertainties in Spain and Italy, and other Asian currencies gave way to profit booking.

The markets had been supported for most of the month by the announcement of a third-round of quantitative easing by the US Federal Reserve, increasing tensions in the Middle East between Iran and Israel and delays in North Sea oil shipments.

The Fed and the Bank of Japan launched fresh monetary easing steps in recent weeks, while the European Central Bank adopted a plan to buy bonds from euro zone states requesting assistance, to help drive down borrowing costs.

While all markets rallied following the announcement, the focus has once again shifted to worries on the euro zone debt crisis, as well as weakness in the U.S. and key Asian consumers such as China and India.

"The Fed and the ECB actions (have) helped buy time but are not game changers," Bank of America-Merrill Lynch analysts said in a report late on Friday.

"After a welcome relief trade, the risks from both sides of the Atlantic will grow as year-end approaches, in our view."

MIDDLE EAST TENSIONS

Escalating tensions in the Middle East offered some support to prices, after Iran hinted at the possibility of a pre-emptive strike on Israel.

"Iran will not start any war but it could launch a pre-emptive attack if it was sure that the enemies are putting the final touches to attack it," Amir Ali Hajizadeh, a brigadier general in the Islamic Revolutionary Guard Corps told Iran's state-run radio on Sunday.

Global oil markets are already reeling under lower supplies after a western embargo on Iran oil shipments and any increase in the unrest could rattle markets further.

Adding to supply worries are the delays in North Sea shipments, especially in view of increased demand during winter in the Northern hemisphere.

Export delays in September and October are the most significant since May's loading programme, when 11 Forties cargoes out of 19 originally planned were deferred, according to Reuters records based on information from trade sources.

"The knock-on impact to the October program suggests that average production will be 65 kbd below the originally published schedule and could lead to a more limited November program in order to adjust for this lost production," J.P. Morgan analysts said in a report. - Reuters